The electrical contracting industry pension fund: to be or not to be a member

August 31st, 2016, Published in Articles: Vector

 

There has been an increase in the number of members wanting to know why they have to belong to the industry pension fund and why it is not possible for them to resign from the fund.

The Board of Trustees of the Electrical Contracting Industry Pension Fund (Cape) regularly receives applications in this regard from employers and employees alike, for exemption from having to belong to the industry pension fund.

There is no law in South Africa requiring employers to institute retirement funds. However, the National Bargaining Council for the Electrical Industry (NBCEI) of South Africa has a Pension and Provident Fund Collective Agreement (published in the Government Gazette) which makes it compulsory for all scheduled employees (employees for whom minimum wages are defined in the Bargaining Council Main Collective Agreement) to be members of the industry pension fund. Employees have no choice in this matter.

The rules of this pension fund are, in turn, governed by the Pension Funds Act, in terms of which a board of trustees comprising both employer and employee representatives must administer the fund.

Sometimes, employees apply for exemption, citing the fact that they already have retirement annuities in place, but the retirement benefits of these annuities are, in most cases, not on par with the industry pension fund and neither does the annuity provide the same risk benefits (disability, death and funeral) as does the industry fund.

There are several other differences between the retirement annuity and the pension fund. Two examples are that the annuity usually only realises a cash value after a few years of contributions and, secondly, the proceeds of the retirement annuity are only available at age 55.

The contributions to annuities are often made in full by the employee, with no contribution from the employer. There is no legal obligation on the employer to contribute towards a retirement annuity whereas, in terms of the industry Pension Fund Collective Agreement, the employer is required to contribute half the monthly contribution.

Hypothetically speaking, should an employee be exempted from membership to the industry pension fund, there would be no mechanism to monitor whether they continue membership with an alternative retirement benefit or whether they terminate the benefit once exemption is granted. This would place both the employer and the employee at risk should the employee be disabled or die while in service without the required cover.

This is why the board of trustees will rarely grant exemption from membership of the industry pension fund.

Pierre Foot, ECA regional director, Western Cape

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